Asia had never been a priority for Prince Alwaleed bin Talal. The Saudi investor, who has accumulated a net worth of $11 billion in deals from New York to Beirut, considered dozens of potential investments in Asia over the years, but he always balked. "Valuations were just too high," he says. "It was crazy."
That was then. Now, the Prince is jetting across Asia in his cream-colored Boeing 727, collecting bargains. In the past three months, Alwaleed has picked up stakes in Singapore property group HPL, Malaysian auto maker Proton, and South Korea's Daewoo--and he's looking for more. "When Asia comes back, and it will, it's going to be even stronger than it was before this crisis," predicts Alwaleed.
As Asia's debt crisis takes a growing toll on cash-strapped companies and governments, longstanding barriers to cross-border mergers and acquisitions are starting to crumble. From Tokyo to Seoul to Jakarta, Western investors--from multinationals to opportunistic vulture funds--are joining the Prince in the business-buying bazaar.
There is a wealth of merchandise to choose from. South Korea's Samsung, Indonesia's Salim, and Thailand's Charoen Pokphand are among the powerful business groups trying to sell subsidiaries in industries such as cars, chemicals, and finance. "For years, everything these groups touched turned to gold," says Hong Kong merchant banker Tony Miller, a general partner of Asian Investment Partners. "Now, that gold is turning to dross."
So far, the sums involved are relatively small. The estimated $52 billion in deals done in all of East Asia in 1997, according to M&A Asia, accounted for about 3% of all deals worldwide. But that amount is expected to mushroom. A recent survey of U.S. and European multinationals by consultant Renaissance Technomic found that 64% planned to step up acquisition activities in the region. "We are pleasantly surprised with the quality and quantity of opportunities that have emerged," says Peter N. Louras, group vice-president of Clorox Co., which is in talks with several possible sellers.
Seeing some of their most ambitious ventures sold off may be a humbling experience for East Asians. But when the restructuring is complete, the rationalization of overbuilt industries and the influx of foreign capital should put the region on firmer footing. That's especially important in the finance sector, where many of the deals are now taking place. East Asia's commercial banks must raise at least $260 billion in new capital to get back on their feet, estimates J.P. Morgan Securities Asia Ltd. banking analyst John Wadle. Industries such as petrochemicals, autos, and property development need similar help.
STRONG HAND. For American companies, the opportunities are breathtaking. Asia's crisis gives them a chance to grab strategic ground--on their own terms--in economies still expected to be among the world's biggest growth markets in the 21st century. "The whole area is going to expand in the next decades," says Ford Motor Co. Chairman Alexander J. Trotman. "We plan to be part of that." Ford is targeting 10% of the Asian market by 2005, from less than 1% now.
With a nudge from the International Monetary Fund, more opportunities may soon be available. The IMF is pushing an overhaul of investment rules in Korea, Indonesia, and Thailand as a condition of financial aid, and that should make broad restructuring less difficult.
That's the upside. The downside is the risk that accompanies such investing. Many of the Asian companies that can be acquired have weak management, Byzantine cross-holdings, and murky financial record-keeping. The latest headlines--riots in Indonesia, President Suharto's dismissal of the head of the central bank, and bond defaults by Thai companies--are reminders that this region is not for the faint-hearted.
None of this has discouraged dealmakers, though. Gary Stead, Merrill Lynch & Co.'s Singapore-based managing director in charge of Asian mergers and acquisitions, has upped his team from 3 to 16 bankers and is still recruiting. Hong Kong-based merchant bank Jardine Fleming Securities Ltd., the leading M&A house in the region in 1997, expects merger activity to account for about 75% of corporate-finance earnings in 1998, vs. about 30% last year.
Korea's cash-strapped chaebol have been the most aggressive in flogging assets. Coca-Cola Co. and Procter & Gamble Co. have picked up big bottling and paper operations from troubled chaebol. Han Wha Corp., formerly Korea Explosives Group, has sold small operations to Alliance Capital Management and Japan's NSK Ltd., and buyers are now eyeing its crown jewel: an oil refinery valued at $2.2 billion. Daesang Group is talking to Cargill and Tyson Foods as part of its drive to unload businesses worth $1 billion. "The chaebol have tried to avoid downsizing," says Park Kyung Min, chief investment officer at Asset Korea Capital Management. "But they have no choice."
The biggest deals could involve the carmaking chaebol. Six years after a bitter corporate divorce, General Motors Corp. is in talks with Daewoo Motors. And Ford began talks in mid-February with Samsung, whose $1.6 billion stake in a new auto plant is threatening to hobble the entire group. If the two companies strike a deal, analysts speculate, the joint venture could then try to buy the 83% of Kia Motors Corp. that Ford does not yet own.
FINANCE BLITZ. Across the rest of Asia, the most profound impact will likely be felt in financial services. Many buyers are still window shopping. But Banque Nationale de Paris has bought the China corporate-finance business of Peregrine Investments Holdings Ltd., while Prudential Securities Inc. picked up Thai broker Nava Securities. GE Capital Services Inc. is pumping $575 million into a joint venture with ailing Toho Mutual Life Insurance Co. And on Feb. 12, Merrill scooped up 30 branch offices, with 2,000 employees, from bankrupt Yamaichi Securities. Says President Herbert M. Allison Jr.: "Merrill Lynch is bullish about Japan."
Real estate is also getting snapped up. Regent Pacific Group Ltd., a Hong Kong-based mutual-fund house, has bought 500 new Jakarta apartments for 10% to 15% of their price before Asia's troubles began, says Managing Director James Mellon.
Westerners aren't the only ones buying. Hong Kong's First Pacific Co. sold its faltering cellular division to Hong Kong Telecom for $350 million. And Singapore's DBS Bank is buying Thailand's 12th-largest bank, Thai Danu Bank Public, and the Philippines' Bank of Southeast Asia.
The reshaping of Corporate Asia won't happen overnight. Much will depend on the success of the IMF rescue and reforms. And, with cross-border M&A so new to Asia, there may be a period of adjustment in these marriages. But the takeovers will help governments and companies alike. The ground is being laid for restructuring on a grander scale than ever before seen in this region.